Borrow from your mother-in-law

Tight and expensive credit market has depressed small business growth

by Chia-Li Chien | Published July 8, 2010


Those businesses that survived the U.S. financial crisis since fall of 2008 must still find ways to keep their heads above water. The artificial fueling of our economy from government stimulus packages, recovery act or small business recovery act does not actually create more jobs, because spending is down worldwide. Couple that with the European financial crisis and slowing growth in Asia and we find that big or small, businesses no longer do the things they used to do. This mounting crises creates an environment of very tight and very expensive credit for small businesses (less than 500 employees). 

We’re fortunate that recently in Charlotte, our mayor and the chamber jointly hosted the 2010 Charlotte Chamber Summits: Access to Capital for Small Businesses and Entrepreneurs. It coupled many of the financial experts in our city with 340 entrepreneurs eager to make connections that would help their businesses grow.

Chamber workshopI moderated the “Understand your Financial Position” workshop along with expert panelists John Blair, CPA, Blair, Bohle & Whitsitt, PLLC; Tom Davis, SVP, Business Banking, First Citizens Bank; Mary Hall, SVP, Charlotte Regional Credit Officer, BB&T; and Jim Mortimer, Business Counselor, SCORE

One consistent message I heard throughout the conference was that most business owners are not sure what financing tools are available to them and how to get them. In my previously published article “Need Money? Think Private Capital Markets,” I shared with entrepreneurs six different types of capital. To be honest, I felt that even the experts at the conference did not explain those options clearly to the participants. It is a complex financial subject, and most business owners really are not sure about what their financial numbers mean anyway.

Chia-Li Chien moderated Chamber workshopThat being said, we no longer can afford to do things the way we used to. We all are trying to figure out how to do more with less. So how do you, as business owners, do that? Revisit or innovate your business model and follow up with serious innovation of your products or services. There are many businesses out there doing extremely well, because Successful Entrepreneurs Reconceptualize.

At the end of the day, when your business needs money to expand, you must prepare to talk to your lenders or investors as if they are your mother-in-law. Even though they may not be in your face all the time, you will still feel very motivated to pay off the debt or buy back the equity if you imagine you have borrowed from your mother-in-law. Help your lender or investors understand your business model and how it translates into return on investment for them. Expect to explain it to them in the same way as your mother-in-law would expect when she demands to know when she can get her money back, plus interest – not to mention her other unique aggravations.

Every business has a unique situation, and capital needs are different, depending on which stage the business is in. The good news is there is available money out there and many investors are willing to invest. Other than the cyclical industry, if you have the right business model, along with the right innovative products or services, investors will be eager to talk to you. In addition, you will need to demonstrate how you are going to implement your strategy so your investors and lenders will see a return on their investment. I’m sure your mother-in-law would be interested in that information as well.

Although I prefer not to borrow money from anyone, including my own parents, I do understand the requirement of doing what you have to do. In the absence of available capital to help you grow, perhaps another option is to look into your existing operations such as your receivables and payables processes to make sure you aren’t financing your customer’s purchases.

Your mother-in-law may not be a grizzly bear fresh out of hibernation, but imagine she is. What will you do to prepare to talk to her about your need to dip into her honey jar of ready cash?

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